• Oil surplus to grow next year
• US shale oil output a key factor
• Riyadh to face critical decisions from mid-2018

The price of oil could fall to $30/b next year and stay at that level for about two years, according to Fereidun Fesharaki, chairman of consultants FGE.

Related video: Challenges, opportunities for Russian oil in wake of OPEC extended deal

Speaking Monday at the opening of the International Association for Energy Economics international conference in Singapore, Fesharaki said that the current level of cuts implemented by OPEC and associated non-OPEC producers should be sufficient to keep the oil price around $50/b for the remainder of 2017.

However, new supply would outstrip demand growth in 2018, leading to lower prices, if OPEC fails to deepen its cuts, he said.

The message of burgeoning excess supply next year was also emphasized by Keisuke Sadamori, the International Energy Agency's Director of Energy markets and Security, who spoke at the IAEE conference earlier.

Fesharaki said the key question was whether there was a limit to US Light Tight Oil production, noting that past expectations of how much LTO the US could produce had already been surpassed.

If there was a limit, he argued, then OPEC's production cuts would eventually have their desired effect. If there was no real limit in the short term, or there was a boom in shale oil production in Argentina, then OPEC's strategy would fail, he warned.

Fesharaki said there was still excess oil on the market, despite OPEC's recent decision to rollover its production cuts, extending them by nine months from end June this year to end March 2018.

Next year the surplus will grow owing to increases in US LTO output and rising Nigerian, Libyan and Kazakh production, while Russia, he said, remained a wildcard, as a result of an expected rise in upstream investment in the country.

Both Russia and Kazakhstan are participants in the OPEC/non-OPEC pact to cut almost 1.8 million b/d from the market over the first six months of this year, and extend that level through to end March 2018.

FOCUS ON SAUDI ARABIA

Fesharaki said that within OPEC, only Saudi Arabia had the capacity to implement deeper cuts. "It's for Saudi Arabia to decide. Are they going to cut more because they think the number [of barrels the US can produce] is limited, or do they think the number is unlimited?" he asked.

"If Saudi Arabia believes there is a limit to US production, they will cut... critical decisions will have to be taken [by Riyadh] in the middle of next year or towards the end of next year," he said.

Widhyawan Prawiraatmadja, from the Governing Board of the Indonesian Institute of Energy Economics, provided an insight into recent OPEC meetings, saying there was no single cohesive viewpoint within the organization.

He noted that the group of OPEC producers within the Gulf Cooperation Council has not dismissed a return to the organization's "market share" strategy, which was initiated by Saudi Arabia in October 2014 but abandoned in October last year.

He said Iran could cope with such a strategy, but it would leave many other members of OPEC "very disappointed".

--Ross McCracken, ross.mccracken@spglobal.com
--Edited by Wendy Wells, wendy.wells@spglobal.com

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